Development work in the Democratic Republic of Congo

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Incentives 101: Why Raising a Baby Calf in Kisangani is Unrealistic

What are the incentives for those living in DRC to work towards a better future? History has taught them that there are no incentives, and history is a strong teacher to overcome.

In America, it’s rather common sense that if you save money you will be better off in the future (Well, it was common sense until everyone drank the housing Cool-Aid). If we choose not to consume all of our wages now, then in the future we will be able to consume at a much higher level thanks to interest. Now, this is a nice incentive to save, which is to say: to invest.

Most people don’t understand where ‘investment’ goes. When people in a country save, that money doesn’t simply sit around, but it gets invested in other areas. The money could go into business loans, or new construction, or technological research, or any area where there is profit for the bank to be made. But it’s not only the bank that profits; it’s the people who saved their money as well.

If I save $1000.00 and in a year I get $1100.00 back, that’s great and I’m happy with the return. But if that original $1000.00 was a portion of a loan which was given to Apple Computers to assist with research and development an iPod that holds twice as much music, then not only did I make a $100.00 profit on my investment, but at some point in the future there will be a new device which did not exist before and my money will now buy me twice as much in the way for song-storage-per-dollar. That sounds like a great deal to me, and thus I am doubly incentivized to invest.

Now what about other countries? Well, during the three years I lived in Ukraine there were two runs on the banks. These were small runs, and were quickly relieved by the government, but they were banking runs none-the-less. Why did this happen? Ukrainians remember all too well when all their money became worthless junk during a period of hyperinflation in the early 1990s. Imagine putting $1000.00 into the bank today, and tomorrow the bank gives it back but it’s only has the buying power of $100.00. On top of that, when investing in Ukraine, the banks aren’t reliable enough with their investments and lending practices. So, when you put your $1000.00 in the bank, you might get a tiny return in interest, but the $1000.00 was most likely only loaned out to the government, so it did little to create new goods and services which will benefit your life.

So, what’s this have to do with a baby calf? Well, one component of our project is training soldiers to raise and breed cattle in order to have another reliable source of meat. While Kisangani isn’t exactly good cattle country, there is good grazing land in eastern DRC and cattle training was designed as a pilot program with the hope of expanding the project to those regions in the future.

A few months ago saw the birth of a calf, which was a significant milestone for the base, soldiers, and our project in general. But you have to understand that much of the work of this project is investment in the future and has little reward for those doing the work at this time. Stack onto that the fact that in the DRC the future always seems uncertain and the common mentality is that it’s better to take everything possible now then wait and have more.

Our calf became the sadly-perfect metaphor for this when it was attacked in the middle of the night by a few drunken men (most likely soldiers). These men were drunk and wanted to take some meat, but rather than go after a fully grown cow which could have fed a company of men they choose to attack future gains.

Incentives are a hard thing to demonstrate when there are so many disincentives around every corner.

The calf lived, though I was highly skeptical during the first few days, particularly since I’ve never seen anything with a 12-inch long by 5-inch deep wound in my life.

I’ll skip on posting the gruesome photos and instead just show this one of the calf after being fixed up and recovering in its private tent:

She’s limping around now and has become a symbol for the base and the soldiers and hopefully this incident will make for a better future.

Great post about the all-too-common “present-tense” mindset that people face in developing countries. When you are desperate, the future seems like a long way away. Eat today, instead of starving for tomorrow. A few comments though:

I am not sure that the housing bust is a good example of consumption rather than investment. Traditionally people have seen housing as investment. It wasn’t until recently that this became mythical.

It’s also important to understand the cultural context within which savings and investment operate in many African villages. Most Africans view family and community over self. (This is one of the reasons I love the continent so much, and something that to out detriment we “Westerners” have forgotten). When the wages come in, family members are apt to request help with school fees, marriage ceremonies, funerals, or hospital bills. It’s nearly impossible to say no. So many Africans feel the need to spend all of their money immediately – either by giving it to their relatives or spending it on themselves before their relatives ask. That’s one reason you see so many half-finished houses around Kisangani. You can’t very well extract school-fees from the foundation of a home.

One last thing- don’t let this incident get you down. There was alcohol involved, and drunkenness is the cause of indecency worldwide, not just in developing countries.

Amanda, Thanks for the great comment, and I definitely wouldn’t let this sort of thing get me down. It’s what happens in a developing nation and is the sort of obstacle that must be overcome.

As for the housing boom in regards to consumption: The housing boom was boosted up with the idea of re-financing houses as well as taking out home equity loans. This was a financial instrument that was praised by Greenspan before he left the Fed, and he even recommended for people to use their house as a line of credit in order to buy more things they want in life. Also, when people refinanced, they ended up with extra cash which could go into further consumption.

As for the African culture of helping others in their family, it does have its benefits, but it is also a major problem when it comes to improving your way of life. When I was researching Malawi, one of the reasons their mobile ATM banking systems were so successful was because people were able to deposit their cash as soon as possible, thus avoiding the situation where once someone has cash many people come out an need some of it.

I agree that it’s a wonderful mentality, but when it comes to bringing a nation up from the bottom, it’s a serious problem.

Thanks for the clarification on the housing crisis. As you can tell, I’m no expert on American politics or economics.

What about finding creative solutions to development that don’t require people to lose their sense of community? I suppose we can agree to disagree on this one. I don’t think that this mentality has to be an obstacle to development. But most would agree with you that it inhibits growth and needs to be overcome with solutions like the mobile ATMs in Malawi.

what a great debate here on savings/investment in the African context!

I fall somewhere between your two perspectives. Like Amanda, I am drawn to the continent because my experience has been shaped by the community-oriented ethos in the areas I have worked in/traveled to. That said, I’ve seen firsthand how entrepreneurs struggle to grow their businesses (or parents save for their children’s education) because of pressing financial needs brought to them by family who have hit rough patches. The problem as I see it is that ordinary people don’t have safety nets and people who tend to have more capital on hand simply don’t have enough to deal with the unforeseen events as well as grow their capital at the same time. The problem is that people have to choose, and in the places where we’ve been, people almost always choose to support family/community needs. In fact, I see this as an insurance on their own future (when they, too, will be in need). In my own life, I budget for the unforeseen occurrences. I know that something will happen (someone will have a baby, someone will have a funeral, someone will need school fees), because in life, things always happen without plans. I set aside a certain amount that will only be for those unforeseen occurrences and I spend/give it as needed.

I agree that there is a need for community which seems absent in much of the developed world. But there are cultures which put more emphasis on community than Americans, such as Asians, and are able to hold onto that in developed societies. But the propensity to ask for money from the family member who just happened to get some causes an financial windfall to be severely diluted. Also, as many studies have shown, African men often have a tendency to spend cash income in a frivolous manner, so a large portion of the family income tends to vanish, further depleting any possible advancement.

In response to Kim and the need for Safety Nets: I agree that this is important, but even in America it’s been shown that people below the real poverty line do not have income great enough to save for disasters let alone for investment in improving their own standard of life. In African countries there are so many factors which need to fall into place simply to keep the status quo. I remember in the Bush League film when the man was talking about his corn crop and how there was no rain and then too much rain, and that was simply to get enough corn to feed his family and buy seed the following year.

Safety nets would be a great thing to strive for, as they would help negate nadirs, which is why I like the idea of banks like Opportunity International Bank of Malawi which provides banking services to rural areas without minimum deposits nor high transaction costs. At least it creates a place to store the money for either a household improvement or a serious tragedy.

Not knowing anything about the culture of the Congo (or the tribes you have come to know) I feel disadvantaged, so don’t take anything I say too seriously.

Doing things for community is usually not altruistic. It is an act with reciprocity implied. Joint families in India institutionalize that idea. Because life is uncertain (and Kim said it so effectively), and insurance is not institutionally provided for all kinds of bad outcomes (even in developed countries, which is why Kim saves for those), join families substitute for insurance. In India sisters-in-law who would otherwise not get along (ok, brothers-in-law belong to other families) live under the same roof; daughters-in-law get along with their mom in laws etc. I think much of involvement with community in DRC may have to do with this, unless I just don’t have a good understanding. Of course you could force community involvement through institutionalized communism, but here it is voluntary and must have a selfish 9in a good way) basis. This is a good thing, and governments should not take it for granted. It could be the grassroots of institutions that help the country advance, but more on that in econ club.

The calf story, while sad, you told well. If everyone thought that way, it would indicate a bleak future, because it would indicate future does not matters. The good thing, ironically, is that it was a deed done only by soldiers, whose power over other people’s property is only temporary, or destroying other people’s investment good denies them a future tomorrow and therefore empowers the militia today. Don’t know if the Coase theorem has an answer to that.